“MediaWorks unreservedly apologises to the Reserve Bank for this incident. Once MediaWorks was aware a leak had taken place, it conducted its own investigation to determine whether the leak had come from within MediaWorks and self-reported that to the Reserve Bank.”

“The leak was caused by a failure within News to follow proper process and changes have already been made as a result. We are addressing the breach with those concerned and new policies and training will be implemented moving forward.”

I also compared the Deloitte report with what the Bank’s legal counsel, Nick McBride, told me about the scope of the enquiry – which they had already commissioned by then – when they asked for my assistance. I included the whole email in yesterday’s post, but this was the bit I had in mind today

The Bank has appointed investigators from Deloitte to try and find out whether there was a breach in security and, if so, how it occurred. They will also review the process for transmitting the Governor’s OCR decision to see if any improvements are needed.

A number of things struck me:

We have not seen the terms of reference for the Deloitte inquiry. They are referred to in passing in the report, but are not attached. That seems strange.

The substance of the report is less than three pages of text. A full page of that is devoted to me. I don’t have too many problems with it, but I understood it was normal public sector practice when inquiries are done to give those affected by the inquiry an opportunity to see, and comment on, the report in draft before it was published. That didn’t happen for me (but there must have been coordination with MediaWorks – did they see the report before it was released?). Had the draft report been shown to me, I would have requested some wording changes.

Despite the comment in McBride’s email that the investigation would “review the process for transmitting the Governor’s OCR decision to see if any improvements are needed”, there is nothing at all on that topic in the published report. I had offered some comments, in passing, on that matter when I met with the investigation team. Were the terms of reference changed at a later date? If so, why?

The MediaWorks statement says that “once MediaWorks was aware a leak had taken place, it conducted its own investigation to determine whether the leak had come from within MediaWorks and self-reported that to the Reserve Bank”. But that seems inconsistent with the Deloitte report, which says that the source was identified only after “communication that we initiated with the journalists”. The inquiry report says it only focused on the media after my meeting with the inquiry on 18 March, and I wrote about the leak possibility for the second time that day (and I know various MediaWorks employees read my blog), and the mainstream media gave a lot of coverage to the story on 21 March. So news of the possible leak was widespread by then at the latest. And yet MediaWorks only self-reported the information about the leaker “to RBNZ and to us [Deloittes] on 5 April 2016”, more than two weeks later. It doesn’t take two weeks for an organization to track something like this down internally – MediaWorks knew which of its employees had been in the lockup. It seems more probable that MediaWorks acted only after the inquiry team requested a meeting with the staff who had been in the lockup.

It is striking that the Deloitte report makes no attempt to assess whether what the MediaWorks person in the lock-up did on 10 March (file a draft story back to their office well before the embargo lifted) had been done before. And the MediaWorks statement also does not address that issue. There are various stories on the media grapevine that it was, in fact, established practice. And while I have no way of knowing whether that is so, it is not inconsistent with the fact that the person who sent me the information presumably didn’t see anything extraordinary about doing so. There is no suggestion in the report or statement(s) that the transmission from the lock-up was somehow accidental (inadvertently hit the wrong button, or somesuch), and if it wasn’t accidental perhaps it was customary. It is unfortunate that the Reserve Bank’s inquiry does not appear to have attempted to assess whether that was the case, or even just note the possibility.

The Reserve Bank’s own statement seems very supportive of the MediaWorks hierarchy, even though (a) people in that organization knew what had happened from the start, (b) must have known it was against the rules, even before I started to draw attention to the issue, and (c) the timing suggests that the management action (and formal internal investigation) was all rather belated, occurring when their people realise they would be interviewed by the inquiry and would have to provide an accurate factual account of what happened.

There seem to be quite a few more questions that should be asked of both the Reserve Bank and the MediaWorks management.

In passing, I would note that I have read and heard many dismissive comments in the last few days from other media people about MediaWorks, and their coverage of economics and monetary policy issues. I don’t watch their TV channel, and am not a commercial radio listener. Nonetheless, I had actually been quite impressed that Radio Live had been keen to run interviews with some one like me on such diverse topics as the OCR, US monetary policy, Kiwibank, the real exchange rate and economic performance, immigration policy and so on. As I say, I don’t listen to commercial radio (my wife kept saying “but no one I know listens to Radio Live”), so I’m not sure how representative those sorts of interviews are. But my experience had been a wholly positive one – intelligent interviewers, aiming at popular market no doubt, asking sensible well-researched questions, and not obviously pursuing “gotcha” moments (but then why would they with a middle-aged rather serious economist, talking mostly about rather geeky issues?).

Someone has, however, drawn to my attention an NBR story in which Rob Hosking reports that

“Mr Reddell did not at the time ask how they knew of the decision an hour before it was announced- an omission which has apparently caused some resentment within Mediaworks who feel he should have warned them about this”.

Yeah right. The MediaWorks people knew very well that the information was not supposed to be outside the lock-up. What was I supposed to do – assuming I had believed it was the fruit of a real leak which, as I noted yesterday, I had no particular basis for doing (25 years of MPSs having gone by without one) ? I genuinely didn’t know what to make of it. I suppose I could have said “you do know you aren’t supposed to have that information, assuming it is true, don’t you?” But the sender, and the people that person apparently overheard, already knew that. The 9am release time is no secret. It was no worse sending it on to me than it was for them to have had the information, in breach of their express commitments to the Reserve Bank, in the first place. I had no ongoing or formal relationship with MediaWorks (I generally talk to any media – or anyone else – who asks), and I reported the matter to the Reserve Bank because if there had in fact been a leak, it was their information and systems that had been compromised. The guilty people were hardly likely to own-up unprompted.

As I noted to a journalist who was pursuing that “attack” line yesterday, when it comes to material about the Bank I try to write reasonably incisive informed commentary, and pose questions designed to help strengthen governance, scrutiny, and accountability of a major public institution. People don’t keep reading embittered tirades, but they come back – and my numbers have been growing steadily – presumably because they find they are getting a valuable perspective on these and other issues. Mine is only one perspective of course, and I’m always happy to debate the issues, arguments and evidence.

Michael, I completely agree. Right or wrong it is important to debate the issues. Lack of transparency usually breeds mediocrity. Power corrupts. Absolute power corrupts absolutely. There must always be transparency in government. The RBNZ with 225 employees sounds awfully expensive and burdensome when this many people is unable to reply to simple requests for information.

My preference for the next OCR decision would be no change even though as a property investor I would benefit nicely from a continuing fall in the OCR. I am also aware that savers do need a return on their savings. I think the macroprudential tools that Wheeler has drawn on to increase Auckland property equity to 30% and high LVR lending limited to 10% needs to be in place. Perhaps he should continue to even move that to 35% equity for Auckland property.

The problem with holding the OCR at 2.5% is that NZ household savings continue to rise faster than NZ household debt which means that NZ banks stability risk is rising. NZ banks in order to preserve record profits and to maintain its net asset position would be under pressure to lend out. It would be interesting to see the rational behind the next OCR decision and how the RBNZ intends to deal with the threat of rising liabilities
(Bank deposit savings are a huge liability on banks books) and therefore rising bank stability risks.

The RBNZ may have to add a new tool to its macroprudential tool kit ie to look at monitoring banks dividend payment policy and banks shared services costs.